The Interaction Between the Paycheck Protection Program and Federal Acquisition Rules: What It Means for Government Contractors (House Small Business subcommittee hearing, March 23, 2021)
Summary
Printed record of a hearing of the House Committee on Small Business, Subcommittee on Contracting and Infrastructure, held March 23, 2021, titled The Interaction Between the Paycheck Protection Program and Federal Acquisition Rules: What It Means for Government Contractors, Small Business Committee Document Number 117–007. Hon. Kweisi Mfume presided and the subcommittee met at 12:00 p.m. via Webex, with Hon. Maria Salazar giving the minority opening statement. Witnesses were Greg Bingham, partner at HKA; Susan Moser, partner at Cherry Bekaert; Robin Greenleaf, chief executive officer of Architectural Engineers, testifying for the American Council of Engineering Companies (ACEC); and Carlos A. Penin, president of CAP Engineering. The appendix adds material from the American Institute of Architects.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“The Interaction Between the Paycheck Protection Program and Federal Acquisition Rules: What It Means for Government Contractors (House Small Business subcommittee hearing, March 23, 2021).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/the-interaction-between-the-paycheck-protection-program-and-federal-ac-4e458e0541/
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THE INTERACTION BETWEEN THE PAYCHECK
PROTECTION PROGRAM AND FEDERAL
ACQUISITION RULES: WHAT IT MEANS FOR
GOVERNMENT CONTRACTORS
HEARING
BEFORE THE
SUBCOMMITTEE ON CONTRACTING AND
INFRASTRUCTURE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
HEARING HELD
MARCH 23, 2021
Small Business Committee Document Number 117–007
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
43–803 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
MELISSA JUNG, Majority Staff Director
ELLEN HARRINGTON, Majority Deputy Staff Director
DAVID PLANNING, Staff Director
(II)
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CONTENTS
OPENING STATEMENTS
Page
Hon. Kweisi Mfume ................................................................................................. 1
Hon. Maria Salazar ................................................................................................. 2
WITNESSES
Mr. Greg Bingham, Partner, HKA, Washington, DC ........................................... 5
Ms. Susan Moser, Partner, Cherry Bekaert, Tysons, VA ..................................... 7
Ms. Robin Greenleaf, PE, Chief Executive Officer, Architectural Engineers,
Boston, MA, testifying on behalf of the American Council of Engineering
Companies (ACEC) .............................................................................................. 9
Mr. Carlos A. Penin, PE, President, CAP Engineering, Coral Gables, FL ......... 10
APPENDIX
Prepared Statements:
Mr. Greg Bingham, Partner, HKA, Washington, DC .................................... 23
Ms. Susan Moser, Partner, Cherry Bekaert, Tysons, VA .............................. 30
Ms. Robin Greenleaf, PE, Chief Executive Officer, Architectural Engi-
neers, Boston, MA, testifying on behalf of the American Council of
Engineering Companies (ACEC) .................................................................. 35
Mr. Carlos A. Penin, PE, President, CAP Engineering, Coral Gables,
FL ................................................................................................................... 40
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
AIA - American Institute of Architects ........................................................... 41
(III)
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THE INTERACTION BETWEEN THE PAYCHECK
PROTECTION PROGRAM AND FEDERAL
ACQUISITION RULES: WHAT IT MEANS FOR
GOVERNMENT CONTRACTORS
TUESDAY, MARCH 23, 2021
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON CONTRACTING AND INFRASTRUCTURE,
Washington, DC.
The Subcommittee met, pursuant to call, at 12:00 p.m., via
Webex, Hon. Kweisi Mfume [chairman of the Subcommittee] pre-
siding.
Present: Representatives Mfume, Golden, Newman, Salazar,
Stauber, Meuser, Fitzgerald, Andy Kim, Schneider, and Hagedorn
Chairman MFUME. Ladies and gentlemen, good afternoon since
it is technically a few minutes after noon.
I want to call this meeting to order officially and I want to make
some important announcements which also are requirements.
Let me begin by saying that the standing House and Committee
rules and practices will continue to apply during these remote
hearings. All members are reminded that they are expected to ad-
here to these standing rules, including the rules that cover deco-
rum.
House regulations, as most of you know, require members to be
visible through a video connection throughout the entire pro-
ceeding, so to the extent possible, please keep your cameras on.
Also, please remember to remain muted until you are recognized
in order to minimize background noise. If you have to participate
in another proceeding that might be going on simultaneously,
please exit this one and then log back in if you can later.
In the event that a member encounters technical issues that pre-
vent them from being recognized for their questioning, I will move
to the next available member of the same party and I will recog-
nize that member at the next appropriate time if he or she is able
to correct the problem.
Again, I know all of you have busy schedules. I appreciate every-
body taking time to be here. I am going to formally introduce our
witnesses in just a few moments but let me just underscore the fact
that this hearing on the Subcommittee on Contracting and Infra-
structure for the 117th Congress is our first. And for our opening
hearing I thought it was very important to examine an issue that
is a priority for government contractors and that is the interplay
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between the Federal Acquisition Regulation, also known as the
FAR, and the Paycheck Protection Program, also known as PPP.
The FAR serves as a primary set of rules governing all executive
agencies and their acquisitions of goods and services. And so today
we will focus on part 31 of Far, which helps contractors determine
which costs are, in fact, reimbursable.
Specifically, we will be taking a look at an aspect of the credit
cause, which can impact Federal contractors who have taken ad-
vantage of the Paycheck Protection Program. Congress created the
PPP to help, as we know, small businesses, meet payroll costs and
other expenses. These loans were designed to be fully forgivable if
small businesses spent loan proceeds on these purposes.
However, Federal contractors, mainly those with false reimburs-
able contracts, may find themselves owing the government a credit
if the PPP loan has been forgiven and it was used to pay for costs
that were under a government contract.
So this is by far some of the virtue of FAR credits and the motion
of the credit clause, which is included in these type of arrange-
ments and more specifically I should say, in these type of contracts.
In April 2020, shortly after PPP’s launch, the Department of De-
fense issued guidance stating that the loan amounts could con-
stitute credits. In essence, the government’s position has been to
take a credit that is due to avoid duplication of payments. With
that said, some small contractors will argue that this is antithetical
to the PPP program’s intent which is to help struggling firms dur-
ing a time of crises.
Contractors contend that if the government forces them to repay
portions of the loan through credits, then the PPP loan was not
truly forgivable.
So today, we will have an opportunity to examine the varying po-
sitions on this critical issue, and during the hearing it will be very
important to note that the Defense Contract Audit Agency has
issued additional guidance on the treatments of credits. And while
there is certainly room for more guidance, this one represents, I
think, an important first step because it clarifies that when a con-
tractors receives PPP loan forgiveness, only the amount of the loan
forgiveness allocable to a government contract results in a credit.
So moreover, it clarifies other matters that help ensure appro-
priate application of credits of which we will learn more about
today in the hearing that is now beginning.
It is clear that this is a complex issue with significant ramifica-
tions for small government contractors. I hope that today’s hearing
will allow us to dive deep into the subject and to better understand
all sides of the issue, as well as available guidance that might come
to us or that might shed light on this subject just as the new guid-
ance did today.
This hearing is an essential first step in coming to a resolution
that does not inflict further harm on the small businesses already
suffering from this pandemic across the country.
So again, I want to thank the witness for joining us here today,
and now I would like to yield to the Ranking Member, Ms. Salazar
of Florida for her opening statement.
Ms. SALAZAR. Thank you, Chairman.
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It is undeniable that small business contractors play a critical
role in the Federal sphere. As you have said, these businesses are
innovators. They drive down the costs by promoting competition
and their flexibility allows them to be agile and adaptable, while
continuing to deliver excellent results often faster and cheaper
than their larger counterparts.
That is why protecting these essential members of our workforce
is critical to maintain Federal operations at a best and optimal
level.
But they are not immune, and they have not been immune to the
far-reaching effects of the COVID-19 pandemic. Indeed, small busi-
nesses everywhere, specifically in District 27, have suffered from
the governmental imposition of endless lockdowns and restrictions.
And many have suffered from cuts to billable hours, widespread
project cancellations, significant disruptions in cashflow, and inter-
ruptions in their ability to perform on the contract.
I have spoken to many of my small business contractors in Dis-
trict 27 in South Florida that I represent in Congress, and many
of them have shared their concerns, including my constituent, Mr.
Carlos Penin, who is here with us today as a witness.
Many small contractors have turned to their Paycheck Protection
Program (PPP), anticipating they may be able to receive loan for-
giveness provided they comply with the criteria that has been es-
tablished by the government.
But apparently, the rules have changed. When the Department
of Defense (DOD) issued in April 2020 a memorandum applying
Federal Acquisition regulations cost principles to the PPP forgive-
ness, DoD had classified forgiveness of the PPP loan as a credit al-
lowed under contract. Now, the DoD has dictated that the con-
tractor must give this amount back to the government.
According to the Department of Defense, this application of the
Federal Acquisition Regulation may be necessary to prevent
against potential abuse by contractors who are seeking a windfall
by billing the government twice. This activity is known as double
dipping, and we are here, elected in Congress, to prevent exactly
that and to help safeguard taxpayers’ money.
However, the contracting community has raised several concerns
with the DoD’s strategy. Some contractors argue that the DoD’s
disposition contradicts congressional intent on the PPP. Others
have taken the view that this unfairly impacts certain contract
types triggering a requirement for payment of the PPP for some
contractors but not for others.
So many take issue with the DoD’s change of rules expressing
their concerns and that they were surprised. This was a surprise
decision which was made unilaterally without their consent. Now
as we know, the deadline for forgiveness is around the corner and
they must decide what to do with their loan. For some, PPP may
be a welcome and necessary supplement to their existing cashflow,
but for others it may not be worth the trouble, particularly in light
of how application of the Federal Acquisition Regulation credit may
negatively affect future revenues.
So I hope, and I am sure you do, Chairman, through the insight
of our distinguished panelists, we will be able to gain a better un-
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derstanding of the DoD’s stated policy, its potential effects on small
contractors, and identify flexible solutions in a bipartisan fashion.
Thank you for your time, and I yield back, Chairman.
Chairman MFUME. Thank you very much. The Ranking Mem-
ber yields back. And I want to thank her for her comments and
thank again all of you who are here joining us.
By the way, if Committee members have an opening statement
prepared, we would ask that they be submitted for the record.
And while I am at it, I am going to ask unanimous consent that
every member has 5 legislative days to revise and extend their re-
marks.
I would like to just take a moment to explain how this remote
hearing will proceed. Each witness will have 5 minutes to provide
a statement and each Committee member will receive 5 minutes
for questions. Please ensure again that your microphone is on when
you begin speaking and that you return to mute when, in fact, you
are finished.
So I would now like to now introduce our witnesses. Our first
witness today is Greg Bingham, a partner at KHA and a co-lead
of their Government Contracts group. He is a forensic accounting
and quantum expert with over 33 years of experience in the field
of business consulting primarily for government and construction
contractors. Mr. Bingham is an authority on government contracts,
having served as an adjunct professor at the George Washington
University, and among his professional memberships, Mr. Bingham
is also a member of GW’s Government Contracts Advisory Board.
He holds a Bachelor of Science degree in Electrical Engineering
and an MBA degree as well. Welcome, Mr. Bingham.
Our second witness is Ms. Susan Moser. Moser. I am getting that
wrong but I will say Moser until I am corrected. And if I am wrong,
please forgive me. Ms. Moser is a partner at Cherry Bekaert and
the leader and founder of their Government Contracting Services
Group. Ms. Moser has 36 years of professional experiences and ad-
vises contractors in multiple areas. She also serves as a regional
market leader of the Cherry Bekaert’s Virginia, D.C., and Mary-
land practices, and is a board member of the Northern Virginia
Chamber of Commerce. She holds a Bachelor of Science degree in
Engineering—in accounting, excuse me—and is a certified public
accountant and a certified information technology professor. Thank
you very, very much, Ms. Moser. Again, forgive me if I am mispro-
nouncing your name.
Our third witness today is Ms. Robin Greenleaf. Ms. Greenleaf
has more than 30 years of professional experience and is the chief
executive officer and founder of the Architectural Engineers in Bos-
ton. She is a professional engineer and an LEED accredited profes-
sional. Ms. Greenleaf holds a Bachelor of Science in Civil Engineer-
ing and a Master of Science in Structural Engineering. She is the
Co-Chair elect of the American Council of Engineering Companies.
Welcome again, Ms. Greenleaf.
Our final witness before I yield back, and Mr. Penin. Please bear
with me because I am just making sure that I have a bio on you.
I did not see one here. Okay.
Ms. SALAZAR. Chairman, I have it here.
Chairman MFUME. I have it. Oh, no, I do not. You do have it?
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Ms. SALAZAR. Yes. Yes, I do.
Chairman MFUME. Please, please, please introduce him, would
you?
Ms. SALAZAR. All right. Absolutely. Thank you. Thank you,
Chairman.
I would like to welcome our final witness who is from my district,
District 27 in Florida, Mr. Carlos Penin. Mr. Penin is the president
and founder of CAP Engineering. CAP is a minority-owned con-
sulting firm specializing in providing engineering services for gov-
ernment clients. Under his leadership, CAP Engineering has
earned a stellar reputation for the professional management of its
infrastructure projects and this has resulted in 30 years of depend-
able services to satisfy government clients. Mr. Penin has an exten-
sive resume with over 40 years of direct project experience and
managerial expertise. Among his many accomplishments, Mr.
Penin worked on several major architectural and engineering
projects in South Florida, including Joe Robbie Stadium, the wid-
ening of the Julia Tuttle Causeway and the reconstruction of SW
Eighth Street. Lastly, I would like to congratulate Mr. Penin on his
recent appointment by Florida Governor Ron DeSantis to the South
Florida Regional Transportation Authority Governing Board. I wish
you well in your new role, and thank you for all that you have
done, not only for our district, District 27, but for the United States
and for this magnificent country who opened its arms to you and
to your family when you were a little boy. Same case with me, and
that is why we are so grateful, and I am delighted to have you here
talking to us and explaining, and giving us your experience in this
last 40 years.
Now I yield back, Mr. Chairman. Thank you.
Chairman MFUME. Thank you, Ms. Salazar. Hopefully, we will
make a great one-two punch throughout the 117th Congress and I
appreciate you stepping up and doing what you could in terms of
properly introducing Mr. Penin. And Mr. Penin, thank you very
much, as with all the witnesses again for being here today.
Madam Salazar, I am going to move to start introducing or call-
ing for remarks of the witnesses unless you have a question or
comment or observation at this point.
Ms. SALAZAR. You can proceed with all the witnesses. Thank
you, Chairman.
Chairman MFUME. Thank you.
Mr. Bingham, you are now recognized for 5 minutes, sir.
STATEMENTS OF GREG BINGHAM, PARTNER, HKA; SUSAN
MOSER, PARTNER, CHERRY BEKAERT; ROBIN GREENLEAF,
PE, CHIEF EXECUTIVE OFFICER, ARCHITECTURAL ENGI-
NEERS; CARLOS A. PENIN, PE, PRESIDENT, CAP ENGINEER-
ING
STATEMENT OF GREG BINGHAM
Mr. BINGHAM. Thank you. Thank you. This is quite an honor
to get to testify here today.
As you mentioned, the FAR, the Federal Acquisition Regulation
is the primary set of rules used by the U.S. Government Executive
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Branch agency. The FAR has 53 parts and FAR 31 is dedicated to
cost principles and procedures.
A key part of FAR 31 is what is the composition of total cost of
a contract and that is key to this credit issue. The cost of a contract
is the sum of allowable direct costs, allowable indirect costs, less
any allocable credit. And so there is more about this credit point
in the credit clause, which is at FAR 31.201-5. Examples of credits
are things like state tax refunds.
This credit clause is not new. It has been in the FAR since the
FAR began in 1984. It was in the Armed Services Procurement
Regulation as early as 1948 in essentially the same form as it is
today.
The impact of the FAR credits clause is different on cost reim-
bursement contracts than on fixed price contracts. If a contractor
incurs $1,000 in cost generally speaking on a cost reimbursement
contract, they will be reimbursed $1,000. Any event that reduces
the allowable cost incurred on a contract will reduce the amount
reimbursed under a typical cost reimbursement contract. And a
credit is an example of something that would reduce the cost on a
cost reimbursement contract.
The impact of the credit clause is different on fixed price con-
tracts. In fixed price contracts, the invoicing and payment provi-
sions generally focus on the contractor demonstrating they have
provided some specified product or service and requesting payment
of a predetermined price. And so if the contractor incurs more cost
or less cost, they still get that predetermined price on a fixed price
contract.
So a credit will reduce a particular contract’s cost and reduce the
amount paid on a cost reimbursement contract but not on a fixed
price contract.
As an example, let’s say Contractor A works solely with the Fed-
eral government and holds only fixed price contracts. Contractor A
has a PPP loan worth $1 million forgiven in 2020. There would be
no repayment to the government for any of the forgiven loan in this
example. Contractor B works solely with the Federal government
and holds only cost reimbursement contracts. Contractor B had a
PPP loan worth $1 million forgiven in 2020. Contractor B would
repay the government for this loan under this scenario.
There are different types of costs. The major categories of cost
are direct and indirect. And direct costs are for people that are ac-
tually working on contracts. Sometimes the labor of people working
on contracts is referred to as touch labor because the mechanic’s
hands are actually touching the car or on the assembly line people
are actually performing the work. Indirect costs are for costs that
are not working on the contractor and more for the growing con-
cern of the company. And so typical indirect costs are things like
facility rent or the salary and benefits of the office administrator
that works in the office and benefits all contracts, does not work
on any particular contract but on all contracts.
Indirect costs are often expressed in terms of an indirect cost
rate. So an indirect cost rate is the ratio of indirect costs to direct
costs. So remember numerator, denominator, top of the ratio, bot-
tom of the ratio. You have got indirect costs on top and the direct
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costs on the bottom in a typical example. And so it might be ex-
pressed as something like 5 percent.
For years that have already passed, a company can determine all
of the direct costs and indirect costs that were incurred in this
prior year. And so in a typical process, after these costs are audited
by the government, the company and the government negotiate a
final settlement of what was the indirect cost rate for that prior
year. There are things called forward pricing rates. And so for
years that are not yet completed, as 2021 is now not completed,
and for years which have not yet commenced, government contrac-
tors often develop estimates of the total amount of indirect and di-
rect costs that will be incurred over the course of the year.
It should not be assumed that future years will have exactly the
same indirect cost rate as a prior year. There can be nonrecurring
events and the forgiveness of a PPP loan in 2020 may well be a
nonrecurring event. Maybe an event that occurs in 2020 that you
do not anticipate will occur in future years. And if that is the case,
then the indirect rates for 2021 and future years should not be
based at all, solely or blindly on whatever the experience was in
2020.
And with that I will——
Chairman MFUME. You probably looked at the clock and started
wrapping up, but we have exhausted the amount of time for you.
If you would let us get through the others I am sure there are
going to be some questions directed your again. And again, I appre-
ciate your understanding.
Mr. BINGHAM. Certainly. Certainly. Thank you for this oppor-
tunity.
Chairman MFUME. Sure. Sure.
The question is now for Ms. Moser. Ms. Moser, again, I know I
have said it several times, if I am mispronouncing your name,
please correct me because with a name like mine I cannot afford
to do that.
Ms. MOSER. Thank you.
Chairman MFUME. You are mute.
STATEMENT OF SUSAN MOSER
Ms. MOSER. Thank you. Chairman Mfume, Ranking Member
Salazar, and members of the Committee, thank you for the oppor-
tunity to speak today.
My name is Susan Moser and I would like to take this oppor-
tunity to talk about the government’s guidance on PPP forgiveness
and its impacts on contractors today and moving forward.
As was previously mentioned, the interaction between the FAR
and PPP was first addressed in April 2020 when DoD answered a
frequently asked question and made clear that DoD expected PPP
loan forgiveness would result in a credit to the government on
flexibly priced contracts. Subsequent to this guidance, confusion
began as most companies have a mix of flexibly priced and firm-
fixed price contracts and many contractors plan to only seek for-
giveness of certain costs which could be a mix of direct and indirect
costs.
While the impact of PPP forgiveness on flexibly priced contracts
has been made clear, the contractor community needs clarity
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around how to handle forgiven costs under other contract arrange-
ments, including contracts with state transportation agencies. To
date, agencies have issued limited guidance with conflicting infor-
mation that contractors are struggling to understand and apply.
DCAA did issue guidance, revised guidance in January of 2021 that
confirmed that credits should be recorded based on how costs were
recorded when incurred. DCAA also stated that a PPP loan forgive-
ness credit should be allocated to the accounting period in which
it is received.
The guidance is contrary to generally accepted accounting prin-
ciples and at least two decisions by the Court of Federal Claims
and its predecessor court. For most companies, forgiveness for costs
incurred in 2020 will occur in 2021.
I would also like to note that the impact of the Employee Reten-
tion Credit creates the same challenges for contractors. Much of the
concern regarding guidance has come from architecture and engi-
neering or A&E firms doing business with state transportation
agencies who receive funding from the Federal Highway Adminis-
tration. These contracts carry many FAR requirements. There is
concern with potential draft guidance being considered by the
Highway Administration that would require all PPP forgiveness
credits to be applied to indirect costs. Accounting for credits in this
way is inconsistent with FAR Part 31 and would result in reduced
indirect cost rates for the year in which the credit is applied, but
could also apply throughout the life of multiple year contracts
awarded in the year in which the reduced rates were established,
potentially resulting in reduced indirect rates for multiple years.
Understandably, many A&E firms are concerned with the impli-
cations of this anticipated guidance. Most states’ Department of
Transportation agencies require A&E firms to have an indirect rate
audit conducted by a CPA firm. Our firm performs many of these
types of audits.
State DOTs are trying to get guidance from the Federal Highway
Administration, but absent that are advising to rely on existing
regulations in determining credits.
There are three areas where guidance could assist contractors.
First, standardizing the period in which the PPP credit should be
reported and included in any indirect rate audit. The credit should
be included in the same year costs were incurred.
Second, I recommend that any contractors that are receiving PPP
funds disclose in the notes to their indirect rate audit the cal-
culated rate both with and without forgiveness considered.
Lastly, inform procurement agencies, particularly transportation,
the rates included in indirect rate audits should be used in negotia-
tions, but that final prices can and should incorporate consider-
ation of the impact of PPP forgiveness. Specifically, while the rate
including PPP forgiveness can be used in year one of a multiple
year contract, subsequent years should be renegotiated using rates
that are not impacted by the PPP credit. Contracting agencies
should also incorporate business judgment in negotiating a price
that is fair and reasonable to both parties.
These recommendations, I believe, align with generally accepted
accounting principles, the FAR Cost Principles and would help al-
leviate negative financial impacts in subsequent years. Further,
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this would reduce confusion while also ensuring contractors receive
the benefit originally intended by the CARES Act but without the
potential to ‘‘double dip’’ and allow some contractors to receive a
greater benefit than companies who do not contract with the gov-
ernment.
Thank you very much for your time today.
Ms. SALAZAR. Mr. Mfume, you are muted.
Chairman MFUME. I was thanking all the witnesses for their
testimony so far and reminding people that we all have their writ-
ten testimony. If they have it nearby I would urge that you hold
on to it because there may be some questions, comments and obser-
vations that go directly back to that.
I would like to recognize Ms. Greenleaf at the current moment.
Ms. Greenleaf, you have 5 minutes. The floor is yours.
STATEMENT OF ROBIN GREENLEAF
Ms. GREENLEAF. Thank you very much, Chairman Mfume, and
Ranking Member Salazar. Thank you for the opportunity to testify
before the Subcommittee today.
My name is Robin Greenleaf. I am the CEO of Architectural En-
gineers, Inc., a woman-owned engineering firm in Boston. We have
33 employees who provide mechanical and electrical engineering
services to Federal, state, and local agencies and private companies
and owners. I am also the Chair-elect of the American Council of
Engineering Companies and I have the privilege of serving as Na-
tional Chair starting in April. It is an honor to represent my col-
leagues here today.
I cannot overstate how important this issue is to small business
engineering firms across the country right now. My 2020 experi-
ence is typical of hundreds and hundreds of my colleagues in the
industry. We relied on the PPP loan to keep our entire staff on the
payroll even in the face of significant business disruptions and rev-
enue loss. And the program was successful. It met its intended ob-
jective.
But now those of us who contract for government clients are fac-
ing the imposition of a credit under the FAR and we think this is
completely misguided. Congress already made clear that forgiven
PPP loans are not to be treated as income for tax purposes and
then further clarified that covered expenses are deductible. In the
same way, forgiven PPP loans ought not to count as income under
the FAR. This was emergency relief to support employers and busi-
nesses ought to be able to take full advantage of the program.
There are numerous challenges with this policy that I want to
highlight for you. One, if this credit is applied to reduce our over-
head rate as opposed by the Federal Highway Administration, we
are going to be working at a discounted rate, not only in the com-
ing year but potentially for several years. Many of our clients lock
in the indirect cost rate over the life of a multi-year contract. On
my $594,000 PPP loan on which we just received forgiveness last
week, I am looking at 32 percent drop in my overheard rate result-
ing in the loss of at least $129,000 per year. Only about 15 percent
of my firm’s work is with public agencies using our FAR rate. For
firms that do predominately DOT work, it is easy to see how the
losses will far exceed the value of the loan.
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This leads to my second point. The impact of the credit will fall
most heavily on small, minority-owned, and women-owned firms
that needed the assistance the most and have come to perform a
higher percentage of government contracting.
I have documented a few examples in my written testimony and
I hear from more colleagues every day. And so the basic outcome
of this policy is that our state and local clients will be benefitting
from the PPP, not us. We are passing the loan through to them
through discounted billing rates. If unchanged, he application of
this credit will create a disincentive for women-owned firms, minor-
ity-owned firms, DBEs, and other small businesses to compete for
work for public agencies. It will derive the government of qualified
engineering services and will hamper efforts to expand small busi-
ness and DBE contracting opportunities.
Let me also say that the inequity here with our counterparts in
the infrastructure market is frustrating. Other contractors working
on Federal aid projects are not subject to these same requirements.
Fixed price contracts are not impacted by the FAR credits clause.
While my rates are reduced, other businesses working on the same
infrastructure projects have been able to retain the full benefit of
the PPP. This uneven treatment does not seem fair or equitable.
There is a real sense of urgency in the industry to get this issue
resolved. Firms that already received forgiveness are starting the
annual audit process and seeing the impact of the credit on their
rates. Some business owners are already questioning whether they
can continue to keep all their employees that they supported with
the PPP loan. Those that have not yet applied for forgiveness are
coming up on the 10 month deadline to start repaying those loans.
Banks are pressuring them to decide whether to apply for forgive-
ness. Our small business owners need to make critical business de-
cisions about the impact on their rates and projected revenues and
employment ramifications.
At a time when the industry is very eager to work with your col-
leagues to deliver a robust infrastructure-based economic recovery
agenda, your prospects for these opportunities are dimmer because
of this credit holding us back.
Thank you for the opportunity to testify.
Chairman MFUME. Thank you very much, Ms. Greenleaf.
Mr. Penin, you are now recognized for 5 minutes.
STATEMENT OF CARLOS A. PENIN
Mr. PENIN. Good afternoon, Chairman, Ranking Member Sala-
zar, all congressional members of the Subcommittee on Contracting
and Infrastructure and everyone present.
My name is Carlos Penin. I arrived from Cuba in 1962 at the age
of six. I think I am giving away my age. I am a proud Cuban Amer-
ican who pursued a career in engineering and ended up fulfilling
my American dream of starting my own business. The company
that I started, CAP Engineering is a small, minority-owned busi-
ness that has been in operation in the city of Coral Gables, District
27, for almost 33 years. Today, I am addressing this Committee as
the founder and president of my company representing my employ-
ees, but also as a former president of ACEC Florida, the organiza-
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tion that represents member engineering firms in the state of Flor-
ida.
In Florida, we have hurricanes, and I have survived multiple
hurricanes during our company’s history, sometimes multiple hur-
ricanes in the same years. The devastation from this pandemic has
been far worse and nobody could have even predicted it, nobody
saw it coming, and the severe impact that it has had.
In the early months of the pandemic, we applied for and received
assistance from the PPP. The assistance that we received was ap-
plied as intended to help keep our loyal staff employed so that
they, in turn, could keep their families fed, safe, and healthy.
The interpretation of the Federal Acquisition Regulation, the
FAR clause, would reverse the benefits received from the PPP and
could have a negative impact for our company and any company
that pursues Federal or state contracting for years to come.
As Robin so well pointed out, if the PPP loan forgiveness is
unallowed and therefore subtracted from the indirect labor cost,
then in our case our overheard rate would be reduced by approxi-
mately 25 percent. If we had multiple year contracts, the lower
overhead rate would be applied for multiple years and for multiple
contracts. This reduction would be higher than the original loan
amount that we received, thus negating the original intent of the
PPP loan which was to help companies such as ours keep our em-
ployees and thus help our families.
I ask you to please consider our industry’s request that this unin-
tended consequence be eliminated. And as good engineers, we are
supposed to finish on time and under budget and I yield back with
2 minutes and some seconds left over in my presentation. Thank
you very much.
Chairman MFUME. Thank you, and my thanks to all of the wit-
nesses.
We are going to begin the open session of questions and com-
ments with members who are present today. And I would like to
recognize myself for 5 minutes.
Mr. Bingham, could you go back and elaborate on what the credit
clause is and how it is supposed to work and how a Federal con-
tractor is bound by the principle clause?
Mr. BINGHAM. Certainly. A key issue for reimbursement of cost
and just cost accounting generally is what is the cost recorded on
a contract. And the cost recorded on a contract is direct cost plus
indirect cost and less any credit. So the issues that are being dis-
cussed here relate—when people talk about paying their employ-
ees, that may well be a direct cost. It is hard to know if there are
indirect employees but it could well be direct cost of performance.
If they talk about paying for facilities cost or their indirect per-
sonnel, then that would be, you know, part of their indirect cost.
But the credits, wherever the credits, wherever the loan money is
spent, that is where the credit should go. If a company uses the
loan for a particular contract, only to reimburse employees on a
particular cost, then the credit should go to that particular con-
tract, not other contracts, not on overhead. If the credit went all
to facility cost and overhead, then the forgiveness should go only
to overhead.
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I hope that helps you understand that in determining the cost on
a contract, the credit has to be reduced from wherever the loan was
spent. That is where the reduction occurs.
Chairman MFUME. Okay. And Ms. Moser, I am just going to
stay on the matter regarding these credits. You mentioned in your
testimony that DCAA issued guidance on how the credits should,
in fact, be applied. Could you take a moment and expand on the
major points of that guidance and how it really works in practice?
Ms. MOSER. Yes. I would be happy to.
So DCAA issued its guidance in January which had a number of
different areas that they addressed. The first area is they were
clear, and this is consistent with the earlier DoD guidance and con-
sistent with the testimony we just heard, that loan forgiveness pro-
ceeds should be applied in the same manner in which the original
cost was occurred. So just as we heard before, if direct salaries
were used and it could be for commercial work or on direct cost re-
imbursable work, that portion of the credit should go back to that
where it was originally incurred. If it was included in the overhead,
that is where it should be incurred. So that was pretty straight-
forward and I think consistent with FAR.
DCAA’s guidance suggested or stated that—and DCAA, when
they issue guidance, they are actually issuing guidance to their
auditors. The general public and contractors certainly use that as
a reference but they are issuing guidance to their auditors. But
they also stated that when the credit is received is the year in
which it should be applied. So that creates some inconsistency as
companies have incurred the loan forgiveness of PPP during 2020
and they are going to get proceeds or forgiveness in 2021. That
matching, that inconsistent matching, I believe is not correct.
They also did address a number of other areas in their guidance
including guidance on contractors doing forward pricing. So a for-
ward pricing rate agreement is a forward looking forecast of rates
that is used for certain types of contracts. It is typically used in ne-
gotiating fixed price task orders or change orders. So they did in-
clude in their guidance that consideration should be given to—2020
we have all acknowledged was an unusual year with unusual cir-
cumstances. And costs incurred and credits incurred in this year
should be considered in looking at forward looking. Just because
historical reference is not necessarily the prediction of what the fu-
ture rates would be. So those were the specific areas they ad-
dressed.
Chairman MFUME. Thank you very much, Ms. Moser.
My time has expired. The Chair will recognize the Ranking
Member, Ms. Salazar.
Ms. SALAZAR. Thank you, Chairman.
I think I want to use my 5 minutes. Maybe I can ask the same
question to the different witnesses. And I would start with Mr.
Penin and then I can ask Ms. Moser.
I think that the main concern the government has is to avoid the
double dipping. So if you were in our position, what would be your
recommendation? I am sure Mr. Penin, Ms. Moser, I am sure that
all of you do not want that happening. We do not want to have to
pay twice. So in which way could we be able to be fair to you but
at the same time not pay you double?
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We will start with you, Mr. Penin.
Mr. PENIN. Thank you very much for the question, Ranking
Member Salazar.
That is more of an accounting function. I do not think that it is
double dipping. We used the loan for what it was intended to be
used, which was to save our employees, and we did that. When we
sought the PPP funding, we looked at it as the lifeline to get to the
other side of the pandemic and that, as we have heard oftentimes,
that goalpost kept moving on us over and over again. So it was a
vital opportunity for us to be able to stay alive, stay afloat during
this last year.
As far as the FAR and how that is used, as I mentioned in my
testimony before, that has a negative impact on the bottom line be-
cause what happens is it gets applied to the indirect labor cost, and
therefore, it pushes our multiplier down. And in some cases as we
will experience in my company, it will put us at 25 percent below
what we are currently doing today.
So we see this as a loan, a forgivable loan that has carried us
through last year. It is not reoccurring but the unintended con-
sequence could reoccur for multiple years to come. I hope that an-
swers your question.
Ms. SALAZAR. Sure. Yes. Thank you.
Why do we not then ask Ms. Moser? Ms. Moser?
Ms. MOSER. Yes. So the FAR incorporates the cost principles
into certain types of contracts. So specifically, the flexibly priced
contracts, cost-type contracts, time and materials contracts. And I
do not think waving the credits clause cart blanche related to PPP
is the appropriate thing to do because it could lead to unintended
consequences and it could provide a situation where contractors
that have only flexibly-priced contracts would double dip. Basically,
they are billing the government for all of their costs incurred and
then they are getting the forgiveness. And so I do not think people
want that to happen, certainly not as a tax payer. I think the chal-
lenge is that the cost principles are referenced in many other types
of contracts and a lot of what we are hearing is regarding state
transportation contracts. And so my recommendation is not a waiv-
er of the FAR credits clause; it is really about issuing better guid-
ance and explaining the situation so that contractors negotiating
with state transportation agencies, for example, have all of the in-
formation about the impacts that, you know, the rate needs to be
calculated as the rate is consistent with the FAR, but how that rate
is utilized in subsequent years I think is really where the guidance
is needed. So, you know, the timing of the guidance from DCAA I
think is a problem and then I think the lack of guidance or con-
cerns about proposed guidance that might be issued from the High-
way Administration—that is really where I think the focus is.
When guidance is issued by audit agencies, they do not seek pub-
lic comments. And with lots of proposed regulations, there is public
comment and an opportunity for people to weigh in. And I think,
you know, that certainly could be helpful to this process to improve
upon.
Ms. SALAZAR. So it is not necessarily an accounting issue ac-
cording to what you are saying but it is just clarification?
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Ms. MOSER. So I think the accounting in terms of how the cred-
its clause should be applied is clear and does not require a change.
I think it is the application of how those rates are utilized in subse-
quent years’ contracts.
Ms. SALAZAR. Thank you. I yield back.
Chairman MFUME. Thank you, Ranking Member.
The Chair would like to recognize Representative Golden from
the state of Maine. Mr. Golden?
Mr. GOLDEN. Thank you, Mr. Chair.
I think I will start with Ms. Moser. And I wanted to ask if there
are other examples out there in addition to the PPP program where
we have COVID-related Federal assistance for which a contractor
might have to provide the government with a credit. And if the an-
swer is yes, could you also elaborate a little bit about why?
Ms. MOSER. Yes. I would be happy to.
I think the most immediate additional assistance is the employee
retention credit. So when the employee retention credit was first
incorporated into the CARES Act, companies that received PPP
loans were not eligible for the employee retention credit. So for
most contractors, you know, PPP was that lifeline, that immediate
assistance that they were seeking so they really didn’t focus on the
employee retention credit. With the legislation that passed in De-
cember, that made available the employee retention credits for
companies that also received PPP loans.
The employee retention credit is a credit against payroll taxes.
So it is consistent with the credits clause—so a company that is a
contractor that has flexibly priced contracts, cost contracts. If they
are eligible to receive an employee retention credit, it is a reduction
against the payroll taxes that they pay. So it would be treated con-
sistently if they originally recorded the payroll taxes say in 2020
when they paid them, it would go to a fringe. Usually that is an
indirect expense considered a fringe benefit. When you receive the
credit, it should be applied back the same in a similar manner. So
it is a very similar situation.
Mr. GOLDEN. Thank you. I think that is helpful.
Ms. Greenleaf, you testified that engineering firms particularly
have difficulty compared to other contractors that also do business
with state departments of transportation. And I wanted to ask you
if you could elaborate a little bit further on that. And secondly, I
wanted to ask if you felt that should Congress mandate DOT to
issue guidance that would ensure that indirect cost rates were
trued up based on what a firm’s real indirect costs were for the
year impacted by the credit, would that address ACEC’s concerns?
Ms. GREENLEAF. To answer your first question, I think that
the engineering firms in general, many of us work for state DOTs.
And so the guidance, the draft guidance that has come out from
Federal Highway at this point is taking a very hardcore approach
to how to deal with the PPP credit. So it is one reason why we
were pushing back so hard on this issue.
We are part of a very narrow band of impacted professionals that
are feeling the pressure from the FAR credit clause. It does not ex-
tend far beyond just those of us who work for state DOTs. And so
based on that, that is why we are wanting to just see the loan be
completely forgiven and not have to apply the credit.
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So having said that, I am going to need to ask you to repeat your
second part of your question and then I will come right back to you.
Mr. GOLDEN. Yes. If Congress were to mandate that the Fed-
eral Department of Transportation issue guidance that would en-
sure that indirect cost rates were more accurately reflecting a
firm’s real indirect costs for the year impacted by the credit, would
that in any way address the concerns of your organization?
Ms. GREENLEAF. I do not know that it does. The reason for
that is that the state DOTs, and that is largely who we are talking
about, are inconsistent across the country in their ability to do the
truing up on an annual basis. And I can tell you from personal ex-
perience in Massachusetts that the work that I do here, we are put
in what is the equivalent of multi-year contracts. The overhead
rate does not change. It is very difficult to get an audit to request
the change. And I think that based on that what we could expect
is just a lot of inconsistency across the DOT’s abilities to do the
truing up and to do annual audits.
Mr. GOLDEN. That is very helpful.
I see I only have 10 seconds left so I will yield back the 8 sec-
onds.
Chairman MFUME. Thank you very much, Representative Gold-
en.
The Chair would now recognize Mr. Stauber. Did we lose him?
Okay, maybe he will jump back in. Okay, Mr. Stauber is out.
Ms. Salazar, I do not see any other members from your side of
the aisle. Am I missing someone?
Ms. SALAZAR. Yeah, they had other Committee meetings going
on at the same time. And myself, I have to go to Foreign Relations.
But I am staying here with you until you have finished with all the
testimonies.
Chairman MFUME. Thank you. Mr. Fitzgerald is here though,
and I would like to recognize Mr. Fitzgerald for 5 minutes. Thank
you, sir.
Mr. FITZGERALD. Thank you. Thank you. Just real quick to
Mr. Carlos Penin.
I understand today we are kind of focused on the PPP stuff, but
in the COVID bill that recently passed it did include some lan-
guage on section 36.10 that authorizes agencies to address con-
tractor employee salaries. I was wondering if you had any com-
ments on that. You know, it is kind of related to catastrophic
events and what my understanding is. I do not know more than
that about it. But I just wonder if you could provide any insight
into the impact that that may have.
Mr. PENIN. Thank you for the question, Congressman Fitz-
gerald. I am not familiar with the new legislation and I am not
going to be helpful to you on that. I have not read it.
Mr. FITZGERALD. Very good. Yeah, it is kind of a struggle and
I think a lot of us have been caught off guard because of the legis-
lation just signed into law. But I would urge the Chair and the
Ranking Member, I think it is something that we need to probably
take a look at and hopefully, because it seems to be boiling up right
now. So thank you, and I will yield back. Thank you.
Ms. SALAZAR. Chairman?
Chairman MFUME. Yes.
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Ms. SALAZAR. I think we do have Congressman Meuser with us.
Is that correct? So we can recognize him?
Chairman MFUME. I see him. Yes. Yes.
We will first recognize Ms. Newman for her 5 minutes and then
we will come back to Representative Meuser.
Ms. Newman?
Ms. NEWMAN. Thank you, Chairman. And thank you, Ranking
Member Salazar.
This is a very timely issue in my district. Dozens of small busi-
nesses have come forward to talk about this with us, so I am so
glad for the testimony today. And thank you to all the witnesses.
It has been very helpful to dimensionalize this for me.
I have a couple of questions and I think I would like Ms. Moser
and Mr. Penin to answer them. And I will go to Mr. Penin first.
So it clearly seems like there is an issue here that can be ad-
dressed, and I do not think it has to be brain surgery. What is your
recommendation? Does it need to be a clarification of rules? Is it
regulatory? Or do you think it requires congressional intervention?
And I will go to Mr. Penin first.
Mr. PENIN. Thank you very much, Congresswoman Newman.
And thank you for your concerns for your district as well. I think
that for us it is probably a clarification of the language and how
it is being applied more so than an act of Congress. I am trying
to keep it simplified because, you know, if you started getting too
many people involved, you know, it starts to muddle the situation.
But I would think that it is something that can be handled as long
as there is a clarification of the interpretation. And I think that
that would be the easiest way of handling it. And it certainly would
serve our purpose on the industry side to have that resolved.
I hope that answered your question.
Ms. NEWMAN. Yes. Yes. And then I need to go to Ms. Moser.
From a technical standpoint, or from an accounting perspective,
what would your remedy be?
Ms. MOSER. Yes, thank you.
So I agree with Mr. Penin. I do not believe that there is legisla-
tive action that is needed to rectify this situation. I think that
could end up with unintended consequences. I really think it is an
issue of clarification on guidance.
The DCAA, as I mentioned, their guidance is issued to auditors.
So, while I disagree and I think it is an incorrect guidance on the
timing of the application, ultimately contracting officers make
those recommendations. The DCAA is making recommendations to
its auditors; contractors if they do not agree with that, ultimately,
it is up to the contracting officer to make a decision on that.
I think the biggest issue, and I think what we have really heard
here today is really related to Federal Highway Administration and
that guidance because that does flow down to, as you heard, the
state agencies. And I think that is really where the majority of the
angst and the concern is that without additional guidance and rec-
ommendations to state agencies there is going to be unintended
consequences longer term than just this year.
Ms. NEWMAN. So just to clarify that, Ms. Moser, you are saying
that the clarification should be some recommendation from Con-
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gress with regard to the PPP program but then also instruct the
state and local agencies as such as well, both steps?
Ms. MOSER. Well, I do not think necessarily that Congress has,
other than trying to get the agencies to issue the guidance, I think
that is really what is needed. And then really it is the guidance
that they issue because all of the state agencies are looking to Fed-
eral Highway Administration for guidance. So I think really the
guidance is needed with clarity from the Highway Administration.
Ms. NEWMAN. Thank you for clarifying that.
I yield back. Thank you, Chairman.
Chairman MFUME. Thank you very much.
I would like to at this time recognize the gentleman from Penn-
sylvania, Mr. Meuser.
Mr. MEUSER. Thanks, Mr. Chairman. Thank you all to the tes-
tifiers. Appreciate it. It is an important subject, clearly. Very finan-
cially important situation that needs clarification. No question.
So I ask, and I will start with Ms. Moser and I will also ask oth-
ers as well, what was understood by you at the time that you sub-
mitted for what was described as a forgivable business loan? Was
it understood that this was to be completely forgivable under the
conditions of retaining your employees?
Ms. MOSER. Hi, since you asked me to address first, so I am an
advisor. I am a partner in an accounting firm and so I advise cli-
ents, so I was not applying for a PPP loan. You know, I think like
just with most of our clients at the time, you know, it was a life-
line, and so I think most companies, you know, had no idea what
was going to happen and so did apply. That was generally our rec-
ommendation.
Mr. MEUSER. Right.
Ms. MOSER. Obviously, there has been much guidance since
then but I think that the forgiveness issue is really for contractors.
There has been much analysis and angst, frankly, on whether they
should or should not apply for forgiveness, again, depending on
really their contract nicks in terms of how that is going to——
Mr. MEUSER. So you advise that, yes, they should take loans
under the understanding of the requirements for PPP and there-
fore, it would be forgivable if they met those requirements?
Ms. MOSER. Yes, generally if they met the requirements. Yes.
Mr. MEUSER. Mr. Penin, is that what you understood from the
original language of the provision in the legislation?
Mr. PENIN. Congressman Meuser, thank you very much. Yes,
that was our understanding. And as I mentioned in my testimony,
this was our lifeline. And then the interpretation came after the
fact. And I think that is kind of where we are today. It was an in-
terpretation given after the fact and that is kind of what surprised
a number of us in passing the torch.
Mr. MEUSER. And I realize there are many, many dynamics. In
fact, there is facing a business, any business, engineering contract,
whatever it might be, particularly with a pandemic coming along,
particularly even in my state where outdoor construction was shut
down for a while with state contracts, contracts with employees not
able to come in out of fear, out of having COVID, out of family
members, out of children at home. So it was a very upheaveled pe-
riod. And I am certainly on the side of small business.
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But let me ask you this. If there is a guaranteed revenue stream
that would be ascertained and made clear, the whole idea behind
PPP was to sustain a small business during a loss of revenue pe-
riod for the purpose of not losing them over the short term and the
long term and not having them go on unemployment.
Now, that being the case, is all your business by the way con-
tracted this way or is it just a percentage? Is it 50 percent of your
revenue comes from the contracts that are affecting the potential
PPP?
Mr. PENIN. Yes, sir. I assume that question is for me. Yes, sir.
I would say that the majority of our work comes from government
contracting. We are a small company. Most of that is as a sub-
consultant to larger state and national or international companies.
But it passes down to us because we still have to go through our
FDOT in our case audit. And that is where this interpretation is
going to be implemented. So yes, sir, most of our business is gov-
ernment-based. The long-term contracts are essential for small
businesses because of the stability that it provides.
Mr. MEUSER. Right. I am just trying to get to where the rev-
enue loss—did you suffer revenue loss during this time period?
Mr. PENIN. Yes. Yes, we did. Yes. We kept our employees. We
kept our employees but we had tremendous losses in revenue be-
cause, I mean, we came to a screeching halt.
Mr. MEUSER. Okay. Well, that pretty much answers my ques-
tion then and should uncover any doubts that the original intent
of this PPP should be upheld.
What about the second round of PPP, did you apply for that?
Mr. PENIN. We have not applied for that. We have not applied
for that.
Mr. MEUSER. Okay. Very good.
Mr. Chairman, I do not have any more questions. I yield back.
Thank you.
Chairman MFUME. Thank you, Mr. Meuser.
We are going to start the second round of questioning, and I will
lead that off by asking Mr. Bingham if he would help put some con-
text into this discussion. I think we all know what the purpose or
the stated purpose of FAR 31 is, but can you tell me when the prin-
ciples of FAR, part 31 kick in? Is there a certain requirement, num-
ber of requirements, or something else that you might be able to
share with us in terms of its implementation?
Mr. BINGHAM. Yes. Yes. Thank you for the question.
The requirements of FAR 31 kick in when there is a sole source
or when there is procurement of a cost reimbursement contract or
a sole source procurement where it is a situation where the con-
tractor has to provide cost information, you know, the cost estimate
to the government customer. And so it is under circumstances of
that nature. If a contractor, if there are sealed bids, in other words,
there was adequate competition, then the government buyer is sup-
posed to base its decisions on the price offered by various com-
petent contractors and not get into what their cost history is or
what their indirect costs are or their direct costs, any of that type
of information. That is the way they are intended to focus it.
And I will just add to the discussion about the indirect cost rates.
The intended approach in the FAR with regard to future indirect
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cost rates is not that you just take the indirect rate for a past year
and assume that it will be matched going forward. That would be
contrary in my interpretation to both the FAR and the audit guid-
ance from the DCAA, for example. And so the issues seem to be
related to this idea that some agencies, some state-related agencies
are just forcing the situation where whatever the past indirect rate
was, that indirect rate will be all that is allowed in some future
year.
I hope I answered your question.
Chairman MFUME. You did, but I am going to ask you to step
out on a limb and tell us how you would fix this if you had the abil-
ity to do so overnight.
Mr. BINGHAM. Yeah, I think I agree with Ms. Moser in the idea
of guidance. I think if the state departments of transportation, if
they did more what the Federal government auditors do, the DCAA
auditors do looking at the guidance there, you know, it is in FAR
42 and 44, I believe, and then not this recent DCAA memorandum
to regional directors but back to the DCAA’s contract audit manual
on how you audit indirect rates and how you audit forward pricing
rates, these indirect rate that are going into the future. If they fol-
low that type of guidance, my impression is that would solve a lot
of this. I do not think they are following that type of guidance right
now. I think it sounds like they are imposing that the same past
indirect rate must be used going forward. So that would be my ‘‘I
am out on a limb.’’ That is about as far out on the limb as I will
go. Thank you.
Chairman MFUME. Well, thank you, sir.
I want to yield to the Ranking Member, Ms. Salazar.
Ms. SALAZAR. This question is for Mr. Bingham and for Ms.
Moser as well and Mr. Penin, three of you.
If by any chance this interpretation of the FAR stance and the
DoD does not change, they cease the way that they do business
with you, in which way not only will it affect your decision to con-
tinue working with the government, or will you then decide to seek
other work in the private sector alone? How will this change your
future is basically what I would like to hear from you?
And we will start with you, Mr. Penin.
Mr. PENIN. thank you very much for the question.
If the interpretation of the FAR stands, it will adversely affect
our multiplier and therefore, our ability to continue to work on gov-
ernment contracts.
I mentioned earlier, in our case, in our particular case it would
be approximately 25 percent of our multiplier would be affected.
We would go from 1.25 to 1.0 and that is a huge impact on our
business. The minority companies and small businesses rely on the
government because of the long-term contracts that we can obtain
from government. In this case, if this rate were to go on for further
years then we would be punished by the same percentage for mul-
tiple year contracts and in some cases it would impact multiple
contracts. So for us that would be a deterrent from pursuing gov-
ernment contracts.
The private sector is on a rebound. Whether we would con-
centrate on that alone would have to be a financial decision that
I am not 100 percent sure right now that I can make but we see
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that if we cannot rely on one. You know, we have to be resilient.
That is what makes us survive. I told you we have been in business
for 32 years. So we will look for whatever opportunity we can to
get to next year and the next year and so forth and so on. But I
would say that it would certainly impact our ability to, and our de-
sire to contract with government under those conditions. Thank
you.
Ms. SALAZAR. Ms. Moser?
Ms. MOSER. So again, I do not contract directly with the govern-
ment. I just advise companies that do. So I am really not in a posi-
tion to address the issue.
Ms. SALAZAR. What would be your advice to those clients?
What would be your advice?
Ms. MOSER. So, again, I really think the issue, if the Federal
Highway Administration issued guidance, each of the state agen-
cies, and our firm does these indirect rate audits for many engi-
neering firms and deals with many state auditors, the state DOT
agencies are looking for guidance. We have reached out to all of
them. They are asking for guidance from Federal Highway Admin-
istration so I think absent any guidance then they feel like they do
not really have a choice on what they do. So I really think Highway
providing guidance and recommendations on what is the purpose
of the indirect rate audit and how should it be used going forward
into future——
Ms. SALAZAR. I am going to interrupt you so I can give the op-
portunity to Ms. Greenleaf, which I did not recognize and then to
Mr. Bingham.
Ms. GREENLEAF. Thank you for the——
Ms. SALAZAR. You have 2 minutes. Yeah.
Ms. GREENLEAF. Thank you for the opportunity to respond.
I think the one point I would like to make is when I took my PPP
loan, it was really under enormous duress. Our business was dis-
rupted. We had to work remotely. And the idea that we would end
up as part of a very, very small sector of the entire PPP universe
that would not be able to take full advantage of the PPP loan and
the original intent is what is driving my being here today. So, I
agree with what Ms. Moser is saying about good guidance coming
from a possible [inaudible] step in the right direction, but I think
for ACEC, what I would like to drive home is that we would like
to be treated like every other company that took a PPP loan out.
Ms. SALAZAR. Just 1 minute 35 seconds to Mr. Bingham.
Mr. BINGHAM. Thank you for this opportunity to respond. I will
just say, and I am an advisor to companies as well, but I think the
guidance in FAR 42-7 and the DCAA’s guidance on this point about
the indirect rates, that you do not blindly accept their past year as
the future year and forecast that into the future. I think if a gov-
ernment entity was telling me that they were going to force me to
have the same rate in the past as the future, I think I may be able
to read them passages from FAR 42-7 in the DCAR manual to
show them why that is inappropriate. Thank you.
Ms. SALAZAR. Thank you. And I would like to recognize Mem-
ber Stauber. He just joined as Chairman.
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Chairman MFUME. Yes. Yes. I will do that in his turn. He actu-
ally, for the record, was with us earlier and stepped away so we
are glad that you are back, Ms. Stauber.
The Chair at this point will recognize the gentlewoman from Illi-
nois, Ms. Newman, for the second round.
Ms. Newman? Are you back with us?
Okay, so let’s do this. I will go to the gentleman from Minnesota,
Mr. Stauber.
Mr. STAUBER. Thank you, Mr. Chair. And thank you for all the
witnesses. I really appreciate your time.
You know, at a time when our small businesses are trying to re-
cover from the crisis, for small contractors, the continued changes
in guidance and memorandums from government agencies have
caused a lot of headaches and confusion.
Mr. Penin, what is your reaction or your thoughts to the govern-
ment’s motive of prevention of double dipping?
Mr. PENIN. Thank you very much, Congressman.
I do not believe that double dipping applies, and I say that sim-
ply because when we applied for the PPP loan and we processed
our paperwork for forgiveness, we consider that as a self-standing
item and not something that we were going to be penalized for
later.
Mr. STAUBER. Okay. Thank you.
My next question is for Ms. Greenleaf. Given your position with
ACEC, what are you seeing from this particular group of busi-
nesses? Are many of them seeking loan forgiveness or not? And
have any of your members decided to forgo forgiveness or even give
the loans back due to this confusion?
Ms. GREENLEAF. Yeah, I think that is a great question, and
thank you for asking it.
I think our members are waiting to see what comes out of Fed-
eral Highway for final guidance. For me, I did apply for forgiveness
and my firm did receive it, but I have been checking with col-
leagues and it is a very inconsistent approach. People would like
to apply for forgiveness. They would like to understand the rami-
fications if they do. Some of the smaller firms like mine, I may
have to make some business decisions about who my clients might
be for the next year or two and point out that on top of the need
to really reach a conclusion that we can all make decisions from
is the fact that the administration is trying to push a very, very
large and serious infrastructure bill out over the summer and we
are the firms that will be hopefully having a part in designing all
of these new transportation projects that may come out. And yet,
if what we were trying to do is knowing that we are getting into
these at a potentially greatly reduced rate. It is a very, very dif-
ficult position to be in.
Mr. STAUBER. Thank you. And then Ms. Greenleaf, again, could
you speak to how this could impact small businesses working on
state and local transportation projects?
Ms. GREENLEAF. So a firm like mine, we have already done the
math. I know what the reduction in overhead rate and cor-
responding hourly rates will be if I choose to continue to work for
our state DOT. And you know, for me they are a very valued client
and I want to find a way to continue supporting them. Many of the
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larger projects at the state level are comprised of very large teams,
so it could have very large engineering firms that are driving the
projects. The team is very diverse and there might be, you know,
10 firms just like mine that are all seeking to gain experience on
large projects. So it is a big impact.
Mr. STAUBER. You know, I look forward to discussions on the
infrastructure project. I certainly hope it is bipartisan and I cer-
tainly hope that the minority has input on it because I think it has
a potential to be really good legislation. We know that it has been
needed and we just want to have input on it.
So Mr. Chair, thank you very much and I yield back to you.
Chairman MFUME. Thank you very much, Mr. Stauber.
I am going to attempt to go to Ms. Newman again. I do not know
if she has her speaker system on. I have seen her go by her camera
a couple of times. And Ms. Newman are you there?
I guess she is not.
The Chair recognizes Mr. Fitzgerald.
Mr. FITZGERALD. Thank you, Mr. Chair. I have no further
questions at this time. I would yield back. Thank you.
Chairman MFUME. Okay. And Ms. Salazar, any further com-
ments from you?
Ms. SALAZAR. I think that we have gathered a lot of informa-
tion between you, we definitely will fit and figure out how we can
make this work for the private sector with more clarification as
some of them have said and with the accounting process having
been reviewed. And I think that is our duty and our job to make
it easy for them, for the private sector and at the same time avoid
any type of double dipping which that is what we are here for.
So I am looking forward to working with you, Mr. Chairman. I
yield back.
Chairman MFUME. Well stated, and the feeling is mutual.
I want to thank you again. I want to also thank all of our wit-
nesses who have made time to be with us. Your expert testimony,
in my opinion, has been invaluable and given the members of this
Subcommittee a greater understanding of how this complex issue
impacts small businesses. Small contractors as we all know have
been devastated by this pandemic. And so it is important that we
ensure that they are not inflicted with any further harm, and at
a minimum we must ensure consistency in the application of the
rules that govern Federal contracting.
So I look forward to working with today’s witnesses and Sub-
committee members to find a path forward so that we might be
able to come up with an equitable solution for these small busi-
nesses.
And I would ask, as I have mentioned earlier, unanimous con-
sent that members have 5 legislative days to submit statements
and supporting materials for the record.
Without objection, it is so ordered.
If there is no further business to come before the Committee, we
officially stand adjourned. Thank you all. Have a good day.
[Whereupon, at 1:21 p.m., the subcommittee was adjourned.]
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APPENDIX
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Æ
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File and source
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- 15,147,900 bytes
- SHA-256
- 4b80935be2b02fa554958c584900e43f72b6dd0aa0b992560b024dd44b0da567
- Our copy
- CHRG-117hhrg43803.pdf
- Original
- www.govinfo.gov